Published: January 25, 2013 at 5:28 pm

Intuitive Surgical, Inc. (NASDAQ:ISRG) is a particularly unique medical equipment company that may offer massive long-term potential for investors. For those of you unfamiliar with their product, the “da Vinci surgical system” it is a robotic device that operating surgeons control manually using a 3-D high-definition visual port. If you have a moment, I would highly recommend web searching a video of their surgical system to see it in action.

Intuitive’s business will go under the knife in this article, and we at Insider Monkey will point out some simple facts that might indicate this robotic equipment dominator is growing in the right direction. At the end of our analysis, we’ll take a glance at some other medical equipment producers and healthcare stocks that might also be good for your portfolio.

Intuitive’s robotic surgical system is designed for minimally invasive surgery and is claimed to be highly beneficial for patients undergoing certain procedures because smaller incisions are made. This means less pain, shorter recovery time, and less time spent in the hospital. Over time it’s likely that the applications of robotic surgery will expand as improvements are made in this field to even more advanced surgeries. Only time will tell if their stock will burst into quadruple digits, but some of their numbers hint that they’re headed in the right direction (see why ISRG shares have surged higher lately).

Intuitive is now on their third generation of da Vinci surgical systems (1st. Standard da Vincisystem, 2nd. da Vinci S system, 3rd. da Vinci Si system). They generate revenue from the da Vinci system itself, along with peripherals and servicing contracts to maintain these systems. As Intuitive upgrades their da Vinci systems, some customers exchange their old unit for a new one, and refurbished units can be re-sold at a lower price to other customers. Trade-in sales can be an important metric for growing businesses and an excellent indicator of 1) existing customers who continue to use their product, 2) new customers, who may not want the newest model, and 3) existing customers who like the product and want to buy extra units second-hand at a discounted price.

Fortunately, we have some numbers that tell us what customers might be up to. Looking at Intuitive’s unit sales from 2009-2011, 16% involved trade-ins in 2009, 19% in 2010, and over 28.5% in 2011. For 1Q-3Q 2012, Intuitive has reported roughly 26% of unit sales from trade-in systems.

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